Search form

DHM Markets/Marketers: PA IOFC a record high

Penn State University’s measure of income over feed costs (IOFC) rose 6.5% in February, according to the latest Dairy Outlook report from economist Jim Dunn. At $12.02/cow/day, the February IOFC is up 73¢/day from January, and the highest value since Penn State began calculating IOFC in January 2000.

IOFC reflects daily gross milk income less feed costs for an average cow producing 65 lbs. of milk per day, and the improvement in February came from a higher milk price. The February Pennsylvania all-milk price was up $1.20/cwt.(4.8%) from the revised January estimate, to $26.10/cwt., a record high.

That milk price increase was offset slightly by a 1.0% increase in overall feed prices. The average cost to feed a cow producing 65 lbs. of milk per day rose 5¢, to $4.95/day.

Measured another way, feed costs per hundredweight of milk produced averaged $7.61/cwt. in February, up 8¢ from January. With the higher milk price, the milk margin over feed costs was $18.49/cwt., up 1.12/cwt. (6.5%) from January 2014 and up $6.87/cwt. (59%) from a year ago.

Dunn’s forecast of the average 2014 all-milk price is $23.70/cwt., which would be up $2.21 (10.3%) from 2013’s estimated price of $21.48/cwt.

Some Wisconsin cheese plants are now running at capacity to meet demand and report being sold out, according to Wednesday's report from Dairy Market News. Producers opting to maintain steady production are generally drawing down inventory levels to meet demand. Orders have remained strong, even after markets saw prices strengthen.

CME prices this week through Thursday have increased to $2.28/lb. for barrels and $2.25/lb. for blocks. Orders received in the Midwest include those from regular customers, as well as orders to meet cheddar demand not being met by some Western cheese producers facing reduced milk availability. Among regular buyers, there has been a noticeable increase in demand for hard Italian cheeses. Plants manufacturing mozzarella and provolone report stronger interest in mozzarella. Reports of cheese plants buying surplus milk on spot markets are not widespread, but sales are reported to be occurring at up to $1.50 over class. Most cheese manufacturers expect milk supplies to continue to increase in coming weeks.

In the West, wholesale cheese prices in the West are higher. The market undertone is mixed as cheese prices look to establish a comfortable range for both buyers and sellers. Cheese production is steady to improving as increased milk supplies appear. Retail demand is good with buyers looking to fill contracted needs and often waiting for price breaks to make additional purchases. Export demand is mixed as the higher prices are close to international pricing. Cheese stocks are tight to adequate to fill contract needs, but are tighter for spot sales.

The FAO Dairy Price Index rose 2.9% over January. Demand for all dairy products remains firm, especially from North Africa, the Middle East (SMP and WMP) and the Russian Federation (butter). Limited supplies have lent support to prices, with the index currently standing 31.3% above its level in February 2013. Mild weather in some regions of Western Europe has provided the basis for a strong start to the 2014/15 season, which will only peak in April-May. Meanwhile, export supplies in Oceania remain limited.

The FAO Meat Price Index declined 0.5% from January, but that decline was primarily due to pork and lamb/mutton. Beef held steady.

Overall, the FAO Food Price Index was up 2.6% from January, but still 2.1% below February last year. For the month, sugar and vegetable oils rose by 6.2% and 4.9%, respectively, with cereals up 3.6%, the strongest rise since July 2012.